Pages

Tuesday, December 03, 2013

OPEC's politics is the main show, not the quota

The Oilholic finds himself in a decidedly chilly Vienna ahead of the 164th meeting of OPEC ministers. This blogger's correspondence on all crude matters from the lovely capital of Austria goes back a good few years and to the old OPEC HQ.

However, in all these years of journeying here from London, there has been one constant - nearly every leading financial newspaper one could pick up at Heathrow Airport carried a report about expectations from the ministers' meeting ahead of the actual event taking place. Yet this morning, most either didn't flag up the meeting or had a perfunctory brief on it. The FT not only omitted a report, but with eerie symmetry had a special report on the future of NAFTA containing an article on shale transforming North American fortunes!

There is clear sense of anti-climax here as far as the decision on the production quota goes. Analysts think OPEC will hold its quota at 30 million barrels per day (bpd), traders think so too, as do "informed sources", "sources close to sources", "sources of sources", etc, etc. Making it even more official, Algerian oil minister Youcef Yousfi has quite candidly told more than one scribe here today that quota fiddling was unlikely.

So why are we all here? Why for the sideshow of course! Silly you, for thinking it was anything but! Only thing is, cometh the meeting tomorrow - it's going to be one hell of a sideshow. Weaved into it is the Oilholic's own agenda of probing the hypothesis of the incremental barrel a bit further.

For not only are additional barrels available globally owing to a decline in US imports courtesy shale, Iraq - which hasn't had an OPEC quota since 1998 - is seeing a massive uptick in production. Additionally Iran, apart from being miffed with Iraq for pumping so much of the crude stuff, could itself be welcomed back to market meaningfully over the coming months, adding its barrels to that 'crude' global pool.

While that is likely to take another six months at the very least - the Iraqis are pumping on regardless. You wouldn't expect anything else, but it has made Iran's new oil minister Bijan Zanganeh come up with the crude quote of the month (ok, last month) when he noted: “Iraq has replaced Iran's oil with its own. This is not friendly at all." Yup, tsk, tsk not nice and so it goes with the Saudis, who pumped in overdrive mode when the Iranians were first hit by sanctions in 2012.

To put things into context, without even going on a tangent about Shia-Sunni Muslim politics in the Middle East, Iraqi production has risen to 3 million bpd on the back of increasing inward investment. On the other hand, Iran has seen stunted investment following US and EU sanctions with production falling from 3.7 million bpd to 2.7 million bpd as the move hit it hard in 2012. Even if the Iranians go into overdrive, reliable sources suggest they'd be hard pressed to cap 3.5 million bpd over the next 12 months.

As for the Saudis, they have always been in a different league vying with Russia (and now the US) for the merit badge of being the world's largest producer of the crude stuff. Meanwhile, the price of Brent stays at three figures around US$111-plus - not a problem for the doves such as Saudi Arabia, but not high enough for the hawks such as Venezuela.

The Oilholic seriously doubts if political problems will be ironed out at this meeting. But what's crucial here is that it could mark a start. Can OPEC unite to effectively manage the issue of both its and the global pool's incremental barrels in wake of shale and all that? Appointing a new secretary general to replace Libya's Abdalla Salem el-Badri would be a start.

El-Badri is long due to step down but has carried on as the Iranians and Saudis have tussled over whose preferred candidate should be his successor. The quota decision is not the main talking point here, this OPEC sideshow most certainly is, especially for supply-side analysts and students of geopolitics. That's all from OPEC HQ for the moment folks, more from Vienna later! Keep reading, keep it
‘crude’!

The Oilholic's Tweets

Meet The Oilholic

I am a London based financial writer and oil & gas sector analyst. I commenced my career in 1997 with internships at
several newspapers and CNBC Asia. I have since worked for Informa, CNBC Europe, Canadian Economic Press,
UNI, Infrastructure Journal and IDG among others. At present, I am a columnist for Forbes. Apart from UK-based
work, I have also reported from Canada, China, EU, India, Hong
Kong, Japan, Middle East, Russia, Switzerland and USA. I have written about the oil
& gas sector since 2004 including spot reports, coverage of OPEC summits,
analysis of oil corporations’ financials and exploration data.

The Oilholic's Affiliations

Legal Stuff

Copyright

Content: The author of this blog/website - Gaurav Sharma - retains copyright of any articles and blog posts published here. Unless the author’s written consent is obtained in advance, you may not reproduce, sell, publish, distribute, retransmit, disseminate, perform, display, broadcast, create new works from, or commercially exploit the content available here which is protected under UK copyright law.Photographs & graphics: Copyright and courtesy of third party images and graphs on this blog/website is duly acknowledged and clearly mentioned as, when and where applicable. Additionally, the author of this blog/website - Gaurav Sharma - retains copyright of any images photographed by him or charts and graphs drawn by him as stated where applicable. Unless the author’s written consent is obtained in advance, you may not reproduce, sell, publish, distribute, retransmit, disseminate, perform, display, broadcast, create new works from, or commercially exploit the graphics, photography and broadcast material available here which is protected under UK copyright law.

Legal Disclaimer

Content on this blog/website is for informational purposes only. Commentaries, analysis and articles published are based upon information gathered from various sources believed to be reliable, complete and accurate. However, no guarantee can be made about the validity of the believed sources. All statements, commentaries and expressions on this blog/website including that of the author are opinions and not meant implicitly or explicitly as recommendations, investment advice or solicitation to trade oil and gas products, place spot or futures trades, CFDs or spreadbets. Oil and gas markets can be volatile and opinions may change without notice. This website is an opinion forum and should be interpreted as such. Its content is neither explicitly nor implicitly aimed at endorsing any trading platform(s), pattern(s) or product(s). Links from this website, if any, are being provided for convenience, informational and reference purposes only. They do not constitute an implicit or explicit endorsement by the author of this blog/website in relation to any of information contained in these links or any products, services or opinions offered on such links. The author of this blog/website bears no responsibility for the accuracy, content, or any other matter related to any external site listed here or for that of subsequent links.